Development of South African Corn Export Logistics: Key role it can play in

sustainability

GSA

10 March 2011 Bothaville

Corn: The Global Context

• Coarse grains (Corn, sorghum, barley, oats, rye millet, mixed grains) global 2010/2011 S&D (as per WASDE Feb 2011 report) (all in million MT):– Global Opening stocks: 195.80– Global Production: 1,081.47– Global Consumption: 1,123.17

• Of which global trade: 115.85– Global Ending Stocks: 154.09

• Coarse grains US 2010/2011 S&D:– US Opening stocks: 48.13– US Production: 330.23– US Consumption: 306.21– US Exports: 53.61– US Ending Stocks: 20.76

Corn: The Global Context

Corn: The African Context

• Kenya, Tanzania, Malawi, Zambia and Mozambique are currently amongst the largest corn producers within the broader sub-Sahara

• Except for Zambia and Malawi most of the regional corn producers do not produce significant exportable surpluses with Kenya and Zimbabwe having been major importers at various periods over the past 4 years

• Zambian and Malawian surpluses are generally constrained to intra-regional trade with deep-sea, deep-draft port access both geographically distant and at large transport and logistics cost

• The outlook for increased grains production within the broader region continues to improve and not inconceivable that in the next 5 year horizon we have the region at break-even and within 7-10 year at a nett exportable surplus

Corn: The South African Context

SAF TOTAL CORN AREA PLANTED

1,500

2,000

2,500

3,000

3,500

AREA PLANTED

Corn: The South African Context

SAF TOTAL CORN YIELD

2.002.503.003.504.004.505.005.50

YIELD

Linear (YIELD)

Corn: The South African Context

TOTAL DOMESTIC MAIZE SUPPLY

8,000.00

9,000.00

10,000.00

11,000.00

12,000.00

13,000.00

14,000.00

15,000.00

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12

TOTAL DOMESTIC MAIZE SUPPLY

Corn: The South African Context

SOUTH AFRICAN CORN DOMESTIC CONSUMPTION

6,500.007,000.007,500.008,000.008,500.009,000.009,500.00

10,000.00

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12

DOM CONS

Corn: The South African Context

SOUTH AFRICAN CORN EXPORTS

-

500

1,000

1,500

2,000

2,500

02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12

BLSN

ZIMBABWE - ROAD/RAIL

MOZAMBIQUE - ROAD/RAIL

DEEP SEA / PORTS

TOTAL EXPORTS

The New Paradigm

• South Africa is at the turning point from marginal corn producer (and irregular importer) to a regular, recurring (nett surplus) corn exporter. This shift has been led by a couple of factors:

• Positive growth in trend yields supported by improved technology, improved farming practices and by the increase in use of GM maize varieties (combined by Governments pro-active approach to embrace the technology)

• Global food supplies are increasingly tested with growing population, demand and disposable income stretching to the maximum the production capacity of the traditional corn exporting countries

• As a result global food and commodity prices have increased significantly from the historical mean and are likely in the short to medium term not to revert to the historical mean

The New Paradigm

This new environment affords South Africa the following opportunity:– Allows the South African farmer to increase his nett profitability

at export parity and consequently expand production and increase exportable surplus

– Allows South Africa to achieve food security, greater price stability, invigoration of the rural economy (with consequent jobs creation) and food independence

– Allows South Africa to be firmly established as the largest agricultural commodity exporter in Africa, placing it in the regional leadership role

– Opens the door for collateral and bi-lateral benefits in global space of increasing demand needing to attract regular supply

The New Paradigm

Above assumes 1.5% growth in annual demand, 2600 mill Ha planted and a gentle, positive slope in trend yield

FUTURE SAF CORN SCENARIOS

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00Production

DomesticCons

Exportablesurplus

Evolution Required

Increase in South African monthly export capacity in theharvest gut slot:

– Implies a mind shift away from the traditional approach of smoothed monthly exports

– Focus needs to shift to increased exports within the harvest gut slot period, with a specific focus on increasing deep-sea export capacity within the gut slot

– Examples internationally are inter-alia Argentina and Brazil where exports are compacted into a time period within 1/2 Quarters from harvest

– Given the potential surpluses that could evolve at trend yield would imply that the logistics chain will need to increase the capacity to export a 1.5-2.5 mill MT surplus within a 5 month window

– In the South African context and crop cycle would imply creating a monthly port export capacity of 300/350,000 MT in the period May-September

South African Corn: Price Cycle

– Planting decision in Sept/Oct/Nov– High price needed to induce farmer to plant corn in favor of

alternative crops and allow farmer to pre-hedge part of his production

– Key weather market Dec/Jan/Feb/Mar– Period is categorized by higher prices as market remains

uncertain and nervous as to final yield and crop

– Harvest gut slot May/June/July/Aug/Sep– Period is categorized by low prices as harvest supply flows to

marketplace and has to find a home

South African Export Logistics: Monthly Historical Pace

SOUTH AFRICAN MONTHLY CORN EXPORTS

0

50

100

150

200

250

300

350

May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr

2010/2011

2009/2010

2008/2009

ACTIONS NEEDED

To achieve this increase in deep-sea exports within the 5 month time window the market will need thefollowing actions:

1. Commitment by Transnet Freight Rail to dedicate rail resources within this key period

• An efficient and dedicated rail service to ports is a key component to ensure a quick, cheap and timely delivery of stocks to the port

• Implies a strong commitment from TFR to dedicate a fleet to exports within this key period

• Also implies a shift in approach from “exports at the cost of domestic” to “exports in the period as additional capacity and opportunity”

ACTIONS NEEDED

2. Commitment by Storage Keepers/Silos tributary to ports to improve loading capacity and conform and invest to allow efficient rail loading:

• Closer attention needs to be paid to demands of an efficient rail and road program in the modern era, a reassessment of existing “block load” capacities on various line, an increase in loading times and turn around of trucks at the key silos

• A consensus needs be achieved that due geographical reality, turn around time and “block load” capacity that certain silos in certain areas will be preferred loading points within the gut slot….specific attention and investment has to be directed at this part of the supply chain

• Within the gut slot supply chain has to move to “24/7” mode

ACTIONS NEEDED

3. Commitment by National Ports Authority to invest in bulk port infrastructure, including inter-alia greater one time storage capacity, improved rail access, improved standing place for road trucks:

• Durban and East London will be the key ports within the gut slot due existing infrastructure and capacity

• Implies a “cross industries” collaboration and an innovative look at existing capacities – maize exports through the sugar terminal?, maize exports using shore cranes/grabs ex flat warehouses?

• Create an environment for greater private sector involvement, the expansion of existing of existing private port terminals, creating positive environment allowing entry of new players and innovation

ACTIONS NEEDED

4. Commitment by all relevant Government Departments to simplify and standardize export procedures:

• Acknowledgement by government that corn exports can play a key role in the national economy, the role it can play in the development of the rural sector and the critical role it plays in long term food security

• With this acknowledgment a prioritization of both the activity and the sector with a key aim to ease unwieldy administrative burdens and facilitate and open the space for new exporters

• An easing of the administrative burden on GMO exports (and corresponding adherence to obligations under the Cartagena Protocol)

• Active promotion internationally of South African corn exports

Conclusion

• South Africa is at the start of a significant paradigm shift from marginal corn producer to nett exporter

• This shift coincides with a global price and supply pattern which looks to reward significantly all countries that are able to increase national output and release a surplus to the global market

• Key within the South African context is insuring that the surplus is exported as quickly and cost efficiently as possible within a defined period and implies a shift from the historical pattern of smoothed annual exports

• To achieve this will necessitate a national collaboration across the supply logistics chain with a key buy-in and support from government, Transnet and silo/storage keepers

• The rewards nationally however are significant with food security, lower consumer prices and a reinvigorated and profitable rural farming sector among some of the most important, immediate rewards

THANK YOU