FOREIGN COUNTRIES' POLICIES AND PROGRAMS
Is South Africa a Viable Exporter?
Although South Africas corn exports are expected to rebound modestly this year, deregulation and the consequent systemic problems could constrain future exports.
Before de-regulation of the one channel marketing system began in1995, the Maize Board controlled both the domestic and export markets. The Board offered high domestic prices but then subsidized exports in high producing seasons. Farmers were paid an announced delivery price for their corn based on the estimated income potential for the entire crop and then after the crop had been sold also received a supplementary payment. The revenue obtained from subsidized sales of cheaper exports was combined with all other sales to calculate that final payment. Thus, this pooling of income sheltered farmers from the free market with its attendant variability and uncertainty and kept them producing even in surplus years. For two years after de-regulation began and the Board was no longer the sole buyer and seller, it continued to run export pools to absorb any surplus from the domestic market and keep domestic prices high. Since 1997, however, domestic prices have been falling toward export parity.
De-regulation also had the potential to open up the market to foreign competition, since in 1995 the quota system was replaced with a minimum price system. Under the new system, a tariff would be imposed when the deviation of a 21-day moving average of the daily US#2 yellow corn FOB price from a set base price is more than $7 per ton for 21 straight trading days. Currently, the tariff is set at slightly more than $10. This system diminishes the chance of cheap imports exerting downward pressure on domestic prices. In the past, imports were done by the Maize board and only occurred during drought years like 1991/92 and 1992/93 and opening the market has not resulted in much competition. Despite low world prices over the past few years, imported corn is really only price competitive (including the tariff) in the southern coastal areas that dont produce corn and where the internal cost of transportation is prohibitive.
The crop harvested starting in May 2000 was more than 35% bigger than the previous years, resulting in a surplus. In what was most likely an attempt to recreate the Maize Boards pools, Grain South Africa (GSA) has attempted to form corn export pools twice so far this marketing year (May/Apr) in an effort to bolster domestic prices. The first was in June and aimed for 700,000 tons, with the second was in late August which aimed for 1 million tons. But since both pools had very little support from farmers who considered the offered price too low, very little corn was actually purchased. Consequently, farm prices plummeted on mounting domestic supplies and an unwillingness and inability to sell at low world prices.
Coordination problems with South Africas rail utility, Spoornet, including inexperienced staff also constrained exports. In May 2000, Spoornet announced it could move a maximum of 200,000 tons a month to the port of Durban, but only moved about 100,000 tons a month since then. The company claims a shortage of locomotives and drivers are the cause of the problems. Before de-regulation, grain logistics were handled by a coordination committee with a computer program and shipments were from a series of central pools. Now, much of the corn bought for export is purchased in small cargoes from many different storage facilities, making logistics more difficult as many different pick-up points slow the delivery process. International traders have claimed it is difficult to export corn from South Africa as they are required to book a specific time for loading and delivery and are then locked into a tight time frame.
Despite those problems, exports rebounded with more than 900,000 tons shipped through the end of calendar year 2000. Early this year, prices rose rapidly as reduced plantings and an extended period of dry weather reduced crop prospects. Despite the sharply higher prices, Japan continued to purchase South African corn for the assurance of not importing GMOs until recently, when a further escalation in prices apparently halted additional purchases.
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