Middle East and Africa Agribusiness

INSIGHT
August 2020
ISSN: 2054-1295
Middle East & Africa Agribusiness

Sub Saharan (Region) Contents
Africa Machinery Outlook: Covid-19 Disruptions Sub Saharan (Region).................1
Africa Machinery Outlook:
But Longer-Term Opportunities
Covid-19 Disruptions But Longer-
Key View Term Opportunities ..........................1
Five Key Themes For Middle East
• Structural constraints will prevent a considerable increase in regional machinery sales.
And Africa Agribusiness ..................4
• Prior to the Covid-19 outbreak, the outlook for the agricultural sector in Sub-Saharan
Africa was more positive over the coming quarters as financial conditions and harvests MENA (Region) .............................7
improve.
Covid-19: Spotlight On Food
• However, the virus and subsequent policy responses will have severe macroeconomic
consequences, which will significant reduce machinery sales growth prospects. Security In MENA...............................7
• The dependence of African farmers on support from governments and multinationals
South Africa................................ 11
will keep future prospects contingent on wider economic development across the
continent. Surging South African Corn
Production Will Boost Supply To
Starting From A Low Base Regional Markets ............................ 11
The agricultural mechanisation rate in Sub-Saharan Africa (SSA) is the lowest in the world.
According to the UN Food and Agriculture Organization (FAO) and the European
Agricultural Machinery Association, roughly 65% of land preparation is done manually by
labourers in SSA, compared with around 40% in East Asia, 30% in South Asia and 25% in
Latin America and the Caribbean. South Africa, Morocco and Algeria traditionally dominate
Africa's new tractor sales market, accounting for a large portion of the continent's total
sales per year; however, more than 80% of these are light machinery of less than 100
horsepower and are two-wheel drive. In another example, Algeria had 140 tractors per
100sq km of arable land in 2008, compared with 271 in the US and fewer than seven in
Nigeria.
AFRICA - COMPARISON WITH OTHER REGIONS

Cereal Yield Fertiliser Use Irrigation (% of Tractors (per
Region
(kg/ha) (kg/ha) arable land) 1,000ha)
Africa 1,040 13 5 28
Head Office
Selected comparable
3,348 208 38 241 30 North Colonnade, Canary Wharf,
countries
London
Note: Africa excludes Egypt and Mauritania. Selected comparable countries are Bangladesh, Brazil, China, India, South E14 5GN, UK
Korea, Pakistan, the Philippines, Thailand and Vietnam. Source: World Bank, Fitch Solutions
Company Locations
Three major dynamics would need to materialise in order for agricultural machinery sales to
London | New York | Singapore | Hong
pick up across most of Africa over the coming years:
Kong | Dubai | Pretoria
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• higher farm incomes, mainly resulting from high commodities prices and good harvests
• positive financial conditions, such as low real interest rates and better access to credit
• favourable exchange rates as African nations continue to rely on imports of agricultural equipment
Individual farm financing remains difficult to acquire in many SSA countries. The FAO has stated that a 'lack of finance is the
overwhelming reason why farmers cannot purchase machinery'. For example, after his re-election in December 2017, Kenyan
President Uhuru Kenyatta announced the Big Four Agenda aimed at modernising the Kenyan economy; however, there appeared
to be no indication of any enhanced financial support for farmers, let alone for machinery purchases.
Such financing will remain difficult to acquire, even more so in the context of the Covid-19 outbreak, as we expect overall SSA
growth to contract by 3.3% in 2020, down from 2.7% growth in 2019. Indeed, we expect a sharp downturn in economic activity in
SSA in 2020, as the widening impact of Covid-19 weighs on exports, fiscal revenues, investment and private consumption across
the region. Moreover, we expect the global spread of Covid-19 to dampen sub-regional growth through three main channels: first,
muted external demand and tourist flows weighing on exports; second, contagion fears weakening private consumption; finally,
lower profit margins discouraging investment. More broadly, we believe that these challenges will only be exacerbated by long-
standing structural obstacles to growth in Southern Africa, such as high unemployment and/or unattractive operating
environments, which already act as headwinds to investment and household spending.
Rates To Rise Over Coming Years

Selected SSA Economies - Central Bank Policy Rate, %
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions
Indeed, looking at South African tractor sales as an example, June tractor sales of 414 units were considerably higher than June last
year, but this is partly because farmers are expecting the rand to weaken and are just expediting purchases before prices increase.
On a year-to-date basis, tractor sales are now 6% lower y-o-y (combine sales have increased). Despite the improvement in sales,
according to the South Africa Agricultural Machinery Association (SAAMA), current industry sentiment is that 2020 sales will still be
10% lower than in 2019 despite a generally improving environment due to good harvests.
Key Long-Term Post-Coronavirus Challenges
Prior to the coronavirus, machinery companies were slowly becoming more optimistic about the long-term sales growth prospects
in the region. For example, Deere & Co said that it expected demand for its farm equipment in Africa to grow 8-10% annually (from a
low base) over the coming years, and the head of the company’s SSA unit singled out Ethiopia, Zimbabwe, Nigeria and Angola for
opportunities. As part of this, Deere is looking to extend credit to African farmers who have traditionally made purchases in cash and
is partnering with local start-ups to allow farmers to hail tractors when needed. Despite the optimism, we believe that once the
economic disruption from the coronavirus passes, countries in Southern Africa and North Africa will remain the key markets for
agricultural machinery companies in Africa over the next five years. We expect these regions - already the continent's largest grain
fitchsolutions.com THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings.
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analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
producers - to see the strongest growth in corn and wheat production between 2019 and 2024.
The outlook for the region's currencies will also have an impact. Overall, SSA currencies will see moderate depreciation in the
coming quarters following broad sideways trading. In particular, we expect depreciatory pressure on Sub-Saharan Africa’s major
currencies to persist but lessen somewhat from Q220 levels given a moderation of global risk-off sentiment. A range of commodity
prices have picked up on the possibility of a recovery in major economies, particularly China, allowing currencies such as the South
African rand to pare back losses. However, the global economy remains in recession, and we continue to highlight that the recovery
will be slow and uneven given that regional outbreaks and lockdowns have been asynchronous. Sub-Saharan Africa (SSA)’s major
currencies will, therefore, remain under pressure in the short-to-medium term. In SSA itself, many governments have started to ease
lockdown measures despite either a rising number of cases, or inadequate testing programmes, adding uncertainty to the timing of
any recovery. On top of this, macroeconomic fundamentals in many of Sub-Saharan Africa’s main economies remain weak, with
economic activity contracting despite significant monetary easing by many central banks.
Major African Currencies Remain Under Pressure

Sub-Saharan Africa - Spot Returns Against USD, Selected Currencies, %
Note: Year-To-Date Movements As Of July 16. Source: Bloomberg, Fitch Solutions
Key Players Expanding Presence In Region
The competitive landscape of the African agricultural machinery market will remain largely stable over the coming quarters owing
to the lasting structural impediments we have outlined above. India-based tractor companies, such as Mahindra &
Mahindra (M&M) and Sonalika, will see solid results in Africa as their products are better suited to the continent's current
agricultural industry climate. This is owing to the fact that Indian companies mainly produce lighter tractors, in line with Africa's
small-scale farming and local farmers' limited budgets. In October 2017, M&M announced that it will set up new production sites in
Durban, South Africa, which began operations in mid-2018. Around the same time, M&M also set up an office in Cairo, its first in
North Africa and fourth in Africa. In mid-2018 Escorts, India's third largest tractor maker, announced a desire to quintuple exports
over the next two years by focusing on Africa, saying that the region could eventually be a second home market.
AGCO announced in early 2016 that they are planning on increasing sales in Africa by 20% annually over the coming years after
adding new capacity on the continent during that time. Specifically, the company built new facilities in South Africa, Algeria and
Zambia. AGCO's key focus in terms of sales will be the Democratic Republic of the Congo and Egypt. Ethiopia - which is slowly trying
to modernise its farming system through the use of exchanges and subsidies - is also a target market for the company. The
company reiterated its commitment to Africa in its 2018 annual report, stating that it is establishing a greater manufacturing
and marketing presence and expanding its use of component suppliers.
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SSA In Pole Position Beyond 2020

Construction Sector Growth By Region, % y-o-y
Sources: Fitch Solutions
Infrastructure Outlook Deteriorating Globally
A number of African governments and multinational agricultural machinery companies have tried to improve mechanisation rates
through significant investment of capital in recent years. Our view is that these efforts will ultimately have limited success unless
inherent institutional problems are addressed and other input use develops. In order to increase profitability in African agriculture,
we believe that three primary goals need to be achieved: partnerships with food companies, the development of cooperatives and
greater access to credit. Similarly, investment in sectors strongly linked to agricultural equipment will be needed if the sector is to
thrive in the coming years. The development of infrastructure - such as roads, ports, power and finance - will be necessary for
sustained growth in the agricultural equipment sector.
The SSA region is facing a dimmer growth outlook over the medium term. We have now made downward adjustments to our
Construction Industry Value real growth forecasts for markets in every region globally. These revisions have been most keenly felt
across the Asia region, in part due to them being in the first wave of markets impacted, as well as having the greatest exposure to
China. Subsequently, our revisions in regions such as Europe, Africa, Middle East and North Africa, and the Americas are mostly less
severe, but given that the situation in some of these markets is only now beginning to develop, we are flagging more acute
downside risks to our outlook for these regions.
Five Key Themes For Middle East And Africa Agribusiness

Key View
• We expect a sharp downturn in economic activity in Southern Africa in 2020, as the widening impact of Covid-19 weighs on
exports, fiscal revenues, investment and private consumption across the sub-region.
• The worst locust swarms in decades in Kenya, Ethiopia and Somalia will only modestly limit agricultural production in the 2020/
21 harvest season.
• Côte d'Ivoire and Ghana's decision to try to control cocoa production will unlikely have a significant impact over the long term.
• Following the recent presidential elections in South Africa, the land expropriation debate will continue to feature heavily in
political discourse.
• Our poultry consumption outlook for the MENA region has been dampened significantly by the Covid-19-induced global
recession and accompanying fall in oil revenues, while austerity measures will most likely weigh on public investment within the
sector.
1. Covid-19 To Further Cloud Africa's Growth Prospects In 2020
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We at Fitch Solutions expect a sharp downturn in economic activity in Southern Africa in 2020, as the widening impact of Covid-19
weighs on exports, fiscal revenues, investment and private consumption across the sub-region. At the time of writing, the virus has
reached all 12 Southern African countries, with South Africa reporting the highest number of confirmed infections (over 150,000).
That said, accelerating case growth in June in most regional markets indicates that lockdown policies may be re-imposed in the
coming weeks, with negative repercussions for economic activity in the bloc. We expect the global spread of Covid-19 to dampen
sub-regional growth through three main channels: Muted external demand and tourist flows weighing on exports, contagion fears
weakening private consumption, and lower profit margins discouraging investment (see 'Covid-19 To Further Cloud Southern
Africa's Growth Prospects In 2020', March 27 2020). Elsewhere, on March 20 the Central Bank of Nigeria (CBN) weakened its official
exchange rate for the naira by 15.0% from NGN307.0/USD to NGN361.0/USD. This marks the first change in the naira’s official
interbank exchange rate since mid-2016. In November 2019, CBN governor Godwin Emefiele stated that a devaluation of the naira
would not be considered until foreign reserves fell below USD30bn. However, gross reserves have fallen from USD40.6bn at the
start of November to USD35.9bn at the time of writing, as global oil prices have been weighed down by weak demand and
oversupply (see 'Quick View: Collapse In Global Oil Prices Forces Nigerian Currency Devaluation', March 23 2020).
Muted Growth Outlook Across Sub-Region In 2020

Select Southern Africa Countries - Real GDP Growth Forecast, 2020
Source: National sources, Fitch Solutions
2. Spraying Programme And Crop Cycle To Limit Locust Damage For Now
The worst locust swarms in decades in Kenya, Ethiopia and Somalia will only modestly limit agricultural production in the 2020/21
harvest season. While locust swarms are relatively rare, last recorded in Kenya in 2007 and in Ethiopia in 2014, they can have a major
impact on food production as the swarms consume massive amounts of vegetation. However, we expect the ongoing Desert
Locust outbreak will have somewhat limited impact on production in the short term for two reasons: First, the timing of Kenya’s and
Ethiopia’s growing seasons, which run from March to December. To date, the locusts have not significantly affected crops, as the
outbreak occurred between major planting seasons. In Kenya, most of the 2019/20 crop had already been harvested in December
2019 when locusts reached the country. Similarly, while Ethiopia experienced significant food price inflation in late 2019, we believe
that drought conditions were the main driver of inflation as the spread of locusts remained relatively limited at that time. Second,
our forecasts count on regional governments implementing broadly effective air and ground pesticide-spraying campaigns in the
coming weeks that will control locust swarms before the next planting season begins in March 2020, preventing significant crop
losses.
Barring effective intervention by regional governments and international organisations, however, the outbreak has the potential to
significantly reduce upcoming harvests in Ethiopia and Kenya. The locust swarms, which had spread throughout Northern Kenya,
Eastern Ethiopia and Somalia as of late January threaten to spread further in Ethiopia and reach South Sudan and
Northern Uganda in the coming weeks. If the outbreak is not controlled by April, the Food and Agriculture Organisation (FAO)
expects that wet weather conditions will support a further increase in the locust population. In such a scenario, locust swarms would
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severely restrict crop production throughout the affected regions, as the planting season for most major crops begins in March and
April.
Locust Outbreak Will Have Limited Impact On Major Crops

Kenya & Ethiopia - Major Foodcrop Schedule
Source: FAO, Fitch Solutions
3. Cocoa Price Floors Offer Limited Support For Ivorian And Ghanaian Farmers
Côte d'Ivoire and Ghana, who together account for around 60% of global cocoa production, announced in September 2019 that
they were looking to cap cocoa production in order to curb oversupply risks. This is their latest attempt to support global cocoa
prices and follows from their recent imposition of a ‘living income differential’ (LID) – a USD400/tonne charge over the futures price
for 2020/21 cocoa sales. While a laudable effort to support farmer incomes, we maintain our view that the two West African nations
will need to address a number of obstacles before they can effectively manipulate cocoa prices. The production ceiling, which has
been proposed in response to concerns that the LID will inadvertently encourage excessive cocoa production, will be difficult to
enforce in practice given that the supply of cocoa is inelastic. However, while we believe that the impact on global prices, all else
being equal, will be minimal in the long term, it could be disruptive in the short term.
Côte d'Ivoire: Largest Cocoa Producer But Small Processor

LHC: Global Cocoa Grindings; RHC: Main Cocoa Producers ('000 tonnes)
f = Fitch Solutions forecast. Source: National sources, ICCO, Fitch Solutions
4. Land Expropriation Debate To Remain A Key Issue In South Africa
Following the election of President Cyril Ramaphosa in the May 2019 South African elections, we believe that the issue of
land reform will continue to feature heavily in political discourse. However, we at Fitch Solutions maintain our view that South
Africa’s ruling ANC party will pass legislation approving expropriation without compensation in limited circumstances in the coming
years. While South Africa’s 2020/21 budget proposes a reduction in agriculture expenditures, the budget provides a modest
increase in funding for land redistribution. Furthermore, it does not significantly reduce the risk for expropriation without
compensation due to broad public and government support for the policy. Political pressure on the ruling African National Congress
(ANC) party to increase land redistribution has risen in recent years as despite decades of slow redistribution, South African
inequality remains among the highest in the world.
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Land Reform Remains A Budget Priority

South Africa - Budget Allocation, ZARmn
Source: National Treasury, Fitch Solutions
5. Weak Economic Outlook Will Weigh On MENA Poultry Sectors
Our poultry consumption outlook for the Middle East and North Africa (MENA) region has been dampened
significantly by the Covid-19-induced global recession and accompanying fall in oil revenues. On a regional basis, we
expect that MENA economies will see only modest growth over the coming years, and that oil-driven economies will see growth
slow significantly due to lower oil prices. We expect these dynamics will weigh on poultry demand and investment in the sector over
the medium term.
Structural challenges to poultry production in many regional markets will persist. A lack of arable land throughout MENA as well as
growing water security issues will ensure that the region remains reliant on imported poultry and inputs. Furthermore, we expect
fiscal challenges will derail agricultural self-sufficiency aims that drove investment in regional production capability.
Middle East Leading The Way In Chicken Imports

Select Regions - Poultry Imports ('000 tonnes)
*Excluding Russia. Source: USDA, Fitch Solutions
MENA (Region)
Covid-19: Spotlight On Food Security In MENA
Key View:
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• At Fitch Solutions, we highlight that the Covid-19 pandemic has shed light on food supply and food security policies in the
Middle East and North Africa (MENA) region, amidst disruptions to supply chains as consumers flocked to supermarkets to
stockpile and panic buy following the announcements of lockdown and social distancing measures in March 2020.
• Our food security indicator scores highlight the Gulf Cooperation Council (GCC) countries as being the most exposed to
disruptions in food supply chains. These countries are heavily reliant on food and drink imports to feed their populations due to
lack of sufficient arable land.
• We highlight three key strategies that are employed to enhance food security in the region: technology as a driver of domestic
food & drink production, foreign land acquisition, and greater government intervention in storage policies.
The Covid-19 pandemic has shed light on food supply and food security policies of the Middle East and North Africa (MENA) region.
In March 2020, supply chains were put under pressure, as consumers flocked to supermarkets to stockpile and panic buy goods,
following lockdown announcements and social distancing measures. For example, mass grocery retail chain Carrefour stated it
recorded sales increases of 300% in the UAE, 700% in Egypt, and 1,000% in Saudi Arabia. Our Agribusiness team have highlighted
that the increased awareness of the vulnerability of food supply chains, coupled with the ongoing rise in protectionism globally, will
likely encourage countries to try and boost food security, a topic that has been on the back burner over recent years due to ample
global supply and low food prices.
We believe that countries in the MENA region are particularly vulnerable to shocks and disruptions in the global food supply chain,
due to their high dependency on food and drink imports. The MENA region (excl. Libya, Jordan, Iraq, Syria and Yemen) imported
approximately USD81.4bn worth of food and drink products in 2018 (latest data). At USD16.8bn worth of food imports, Saudi Arabia
is one of the largest food and drink importers globally (19th position). This heavy reliance on food and drink imports are the result of
environmental disadvantages, with many countries in MENA having scarce water supplies and a lack of fertile soil resources, as well
as very hot and arid climates. We also note that rapidly growing populations in the region have accelerated the dependency on food
and drink imports from other countries. The MENA region saw its population increase 47% over the past 20 years, 314.8mn in 2000
to 462.8mn in 2020.This far outpaces the global average growth rate of 28% over this period. Although slowing, the region will
continue to see rapid population growth of 19% over the next decade, to reach 537.6mn (the global average growth rate is
projected to be 9% in this period), further stressing the growing importance of food security.
MENA Region Dependent On Food Imports

MENA Region - Food & Drink Imports, USD '000 (2018)
*2017 data. Source: Trade Map, Fitch Solutions
We also highlight that the MENA region has relatively undiversified food and drink supply chains, with many countries in the region
relying on a few trade partners to meet their needs. For countries in the MENA region, an average of 47.7% of total food and drinks
imports in 2018 can be attributed to their top five import countries. Globally, the average is 33.6%. The Covid-19 pandemic has
drawn increased attention to the issues that undiversified food supply chains can engender, especially as governments look to
consolidate and preserve their domestic food sources. Russia (the global leader in wheat exports) has stated it will limit grain exports
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from April to June, after which Egypt (a global leader in wheat imports) ramped up grain purchases and stated it will halt the exports
of legumes for three months. We also note that Indian rice traders have stopped signing new export contracts due to labour
shortages and logistics disruptions, leaving MENA countries heavily exposed, with the UAE and Saudi Arabia sourcing 78% and
73.2% respectively of their rice from India in 2018.
Food Security At Risk Due To Undiversified Supply Chains

MENA - %share of top five food & drink export partners (2018)
*2017 data. Source: Trade Map, Fitch Solutions
To better identify food insecurity in the region, we have created a food security indicator score table that highlights how exposed
different countries in the MENA region are to disruptions and external shocks in food supply chains. We look at three key pillars:
• Imported Food & Drink Dependency: This is the absolute value of net food and drink imports (exports minus imports) relative
to total food and drink spending in a country. The higher the score, the less dependent a country is on food and drink imports. A
score of above 1.00 indicates a country exports more food and drink products than it imports.
• Arable Land: We measure the percentage share of land cultivated for crops (including wheat, maize, and rice) that are replanted
after each harvest. A larger score indicates a higher share of arable land. Note, this is a relative score and not arable land as a
percentage of total land in a country.
• Diversification: This quantifies the diversification of food & drink supply chains by measuring the percentage share of a
country's imports, excluding its top 5 import partners. A higher score indicates more significant levels of diversification.
FOOD SECURITY INDICATOR SCORES: GCC EXPOSED TO SHOCKS IN FOOD SUPPLY CHAINS
Imported F&D Arable Land Score Diversification Overall Score Rank
Dependency Score Score
Morocco 1.05 0.30 0.49 0.62 1
Tunisia* (2017 data) 0.94 0.31 0.44 0.58 2
Iran 0.97 0.18 0.46 0.54 3
Lebanon 0.68 0.20 0.70 0.54 4
Saudi Arabia 0.68 0.03 0.63 0.45 5
Egypt 0.78 0.05 0.43 0.42 6
Algeria* (2017 data) 0.73 0.05 0.44 0.41 7
United Arab Emirates 0.58 0.01 0.62 0.40 8
Qatar 0.34 0.02 0.62 0.33 9
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Imported F&D Arable Land Score Diversification Overall Score Rank

Dependency Score Score
Kuwait 0.38 0.01 0.59 0.33 10
Oman 0.48 0.00 0.31 0.26 11
Regional Average 0.69 0.11 0.52 0.44 n/a
Note: higher score = higher food security outlook. Source: Trade Map; CIA World Fact Book, Fitch Solutions
Our food security indicator scores highlight that the GCC countries are the most exposed in the region to disruptions in food supply
chains. These countries are heavily reliant on food and drink imports to feed their populations and have insufficient arable land. Only
0.1% of total land in Oman, for instance, is arable and as such, is very reliant on imported foodstuffs, due to its small domestic food
and drink production sector. This is obviously not a new concern for countries in the region. Rather, the Covid-19 pandemic and
resultant trade protectionism thrust the issue into the spotlight. Below, we highlight three key strategies that are employed to
enhance food security in the region:
Technology As A Driver Of Domestic Food & Drink Production
As traditional methods of large-scale farming prove difficult in many MENA countries, due to limited arable land, water scarcity and
hot and arid climates, technology-enabled food production will become a key measure to improve food security in the region. While
the UAE currently leads the way in terms of agritech, we highlight technology-driven food production has the potential to be
increasingly adopted in other countries as well, especially in the wealthier countries of the GCC.
On our food security indicator scores, the UAE comes in at 8th position in the MENA Region, with an overall score of 0.40, below the
regional average of 0.44. While the UAE has a relatively diversified food supply chain, thanks to the commercial port of Jebel Ali,
which makes the country a global transhipment hub, it has very limited arable land and therefore continues to be dependent on
food and drink imports. The government of the UAE has identified food security as a top priority, and in 2018 the Minister of Food
Security in UAE launched a national food security strategy. As a result of limited arable land (and water scarcity), this strategy largely
focuses on technology-enabled domestic food production, with the country aiming to increase production of a select number of
strategic food items, which include fruit, vegetables, seafood and livestock, by 15% by 2051.
A key development in the space of technology-enabled food production in MENA is Madar Farm's 5,000 square-metre indoor
farming facility, which is expected to be fully operational by the end of 2020. All grown produce will be distributed locally across the
UAE and available for purchase. The indoor tomato farm will be installed with more than 5,000 LED fixtures and the tomatoes will be
grown using 30% less water per kilogramme compared to high-tech greenhouses, with this being key for the UAE's food
sustainability due the country's limited fresh water supplies.
We highlight that the Covid-19 pandemic has the potential of accelerating the development of technology-enabled food
production in the region. In the UAE, Madar Farm's locally grown produce can now be purchased online for the first time through
three online platforms, as the company seeks to satisfy the high consumer demand for food products during the Covid-19
pandemic. In light of Covid-19, the Abu Dhabi Investment Office announced in April 2020 that it had invested USD100mn to
encourage four agricultural technology firms to build research and development facilities in the emirate, with AeroFarms stating
that it seeks to construct the biggest vertical farm of its kind in the world with the first harvest planned by mid-2021. Similarly,
Wafra, Kuwait's national investment company, pumped USD100mn in Pure Harvest Smart Farms, a tech start-up focusing on
agricultural developments, in April 2020.
Foreign Land Acquisition
While Saudi Arabia scores better on our food security indicator scores, with an overall score of 0.45, compared to its GCC peers, the
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country remains reliant on imported food items to feed its relatively large population of 34.8mn inhabitants. Due to its rapidly
growing population and limited arable land, food security has been on Saudi Arabia's agenda for a while, with King Abdullah bin
Abdulaziz having announced a food security initiative in January 2009, which was backed by a SAR3.0bn (USD800mn) fund to
support private sector investment in agriculture abroad. As a result, foreign land acquisition has been, and continues to be, a key
pillar in Saudi Arabia's food security strategy.
In 2019, the Saudi Agricultural and Livestock Investment Company (SALIC) announced the acquisition of 200,000 hectares
of farmland in Australia. The land will be used for large-scale crop production, as well as sheep production, allowing Saudi Arabia to
gain more control over its food supply. In 2018, SALIC purchased 165,000 hectares of land in Ukraine, on which wheat, rapeseed,
barley, sunflower and other crops are cultivated. In April 2020, Saudi Arabia made first purchase from agricultural investments in
Ukraine aimed at enhancing the country’s food security, with food importers in Saudi Arabia trying to boost their reserves as food
security worries emerge due to disrupted supply chains following the Covid-19 pandemic.
We note that Saudi Arabia is not the only country having adopted this strategy. Qatar Investment Authority, Qatar's sovereign
wealth fund, announced plans to invest USD500mn in Sudan's food industry over 2019-2021. Due to increased awareness of the
vulnerability of supply chains following the Covid-19 pandemic, we believe that this strategy will continue to be employed by
GCC countries to secure their food supply chains.
Greater Government Intervention In Storage Policies
An important strategy to secure food supplies in times of crises, emergencies and/or disasters is the storage of foodstuffs. While
Saudi Arabia, the UAE, and Qatar all announced there are sufficient stocks of food supplies to meet consumer demand amid the
coronavirus outbreak, we note an increase in government intervention to regulate food stocks and storage policies.
In the UAE, the president approved a law for regulating the strategic stock of food commodities in the country in March 2020, prior
to the introduction of Covid-19 lockdown measures. The new law requires retailers to allow the government to monitor its
inventory, location and storage conditions. Retailers who do not comply to the regulations or hoard food supplies risk financial
penalties or jail.
In Qatar, an electronic system to manage and monitor strategic stocks was launched in March 2020. The electronic system enables
the authorities to monitor and follow up the state's stock of food and consumer goods, set import rates and establish import
sources, and monitor the movement of internal trade and national production in the country.
South Africa
Surging South African Corn Production Will Boost Supply To Regional
Markets
Key View:
• We have revised South Africa’s corn production for 2019/20 slightly downwards from 16.0mn tonnes to 15.5mn tonnes.
However, we still expect the sector will show a strong rebound due to higher plantings and near-record high yields.
• For the 2020/21 corn crop, we expect South African production will reach 17.0mn tonnes as long-term trends suggest
continued yield growth and regional import demand will be high.
• GMO adoption trends in Southern Africa support South African export prospects, as well as the long-term yield outlook for
countries that adopt new bio-security standards.
At Fitch Solutions, we have revised our South African corn production forecast for 2019/20 (ending in August 2020)
down to 15.5mn tonnes from a previous forecast of 16.0mn tonnes. Higher yields paired with a double-digit increase in planted
area will combine to push corn production over 30% higher to the second-highest total in South African history. Despite a long-
Page 11
term downward trend in corn plantings, according to the Crop Estimates Committee (CEC), the planted area for corn increased
13.5% in 2019/20, as drought-induced higher prices incentivised higher plantings. While we already expected production to
rebound significantly following low production in 2018/19, we are revising out forecast down slightly as data through late May
shows yields falling short of 2016/17’s record levels across all of South Africa’s main corn-producing regions.
For the 2020-21 season, we maintain our forecast that South African corn production will total 17.0mn tonnes. While higher exports
to Zimbabwe will keep stockpiles low, we expect that low corn prices in South Africa will constrain planting levels. Amid the long-
term downward trend in corn plantings, yields in South Africa have been trending steadily higher, from 4.2 tonnes/hectare in 2011/
12 to approximately 5.6 tonnes/hectare in 2019/20. These rising yields are largely the result of improved technology usage within
the sector, as well as South Africa’s embrace of GMO crops that increase herbicide tolerance and insect resistance.
Amid Economic Turmoil, South African Corn Prices Have Remained Low
South Africa Corn Prices (ZAR/MT)
Source: South African Futures Exchange, Bloomberg, Fitch Solutions
For the 2020-21 season, we maintain our forecast that South African corn production will total 17.0mn
tonnes. Despite modestly higher exports to Zimbabwe, facilitated by Zimbabwe's removal of its ban on imported GMO crops, we
expect that low corn prices in South Africa will constrain planting levels. Amid the long-term downward trend in corn plantings,
yields in South Africa have been trending steadily higher, from 4.2 tonnes/hectare in 2011/12 to approximately 5.6 tonnes/hectare
in 2019/20. These rising yields are largely the result of improved technology usage within the sector, as well as South Africa’s
embrace of GMO crops that increase herbicide tolerance and insect resistance.
Elsewhere in Southern Africa, Zambia will record a strong crop in 2019/20 as favourable weather boosts yields.
Accordingly, we have revised our forecast for Zambian 2019/20 production up from 2.4mn tonnes to 2.7mn tonnes and we now
forecast 3.2mn tonnes in 2020/21. Mozambique’s corn production will have fallen approximately 16.6% in 2019/20 to 2.1mn
tonnes due to poor weather. Despite elevated corn prices, the outlook for 2020/21 plantings in Mozambique remains negative as
low farm incomes in recent years following several major natural disasters will weigh on plantings. Zimbabwe's corn production
rebounded slightly in 2019-20, though we expect the corn crop will remain below average in 2020/21 due to drought conditions
Southern Africa Still Lags On GMO Usage, Though Gradual Adoption Anticipated
While most countries in Southern Africa have not yet authorized GM crops, and none have been as prolific as South Africa in the
space, there is a growing trend towards acceptance and regulation of genetically modified crops. Zambia authorized several GM
strains of corn in 2019 and eSwatini has approved 2 types of GM cotton. In December 2019, Zimbabwe joined Mozambique in
allowing imports of GM crops, in response to growing risks of famine amid the country’s worst drought in 40 years. Zimbabwe’s
reversal of GMO policy paired with expected corn deficit in 2020/21, will drive South African maize exports to its neighbour higher.
South Africa remains the regional leader in GMO usage and adoption of GMO seeds is widespread in its agricultural sector, as the
Page 12
USDA estimates 94% of corn plantings, 95% of soybean plantings and 100% of all cotton plantings in South Africa are grown from
GM seeds.
Most SSA Countries Have Been Slow To Approve GMOs

SSA - Approved GM Events
Source: ISAAA, Fitch Solutions
Furthermore, over the longer term, we expect more Sub-Saharan African countries to liberalise GMO policies and
encourage higher yields in key crops like corn, cotton, and soybeans. Several countries are conducting tests on GMO strains of
key crops. Notable among these efforts is the Water Efficient Maize for Africa (WEMA) project, funded in part by GMO developer
Monsanto, has been developing and testing drought-resistant GMO corn strains in Kenya, Uganda, Tanzania, South Africa, Ethiopia,
and Mozambique since 2008, with the goal of commercializing the strains by 2023.
SOUTHERN AFRICA - CORN PRODUCTION & CONSUMPTION FORECASTS

Geography Indicator 2018e 2019e 2020f 2021f 2022f 2023f 2024f
Mozambique Corn production, '000 tonnes 1,704.0 2,500.0 2,085.0 1,400.0 2,189.3 2,364.4 2,553.4
Mozambique Corn production, % y-o-y 14.6 46.7 -16.6 -32.9 56.4 8.0 8.0
Mozambique Corn consumption, '000 tonnes 1,800.0 2,500.0 2,300.0 1,800.0 2,493.0 2,667.0 2,854.0
Mozambique Corn consumption, % y-o-y 12.5 38.9 -8.0 -21.7 38.5 7.0 7.0
South Africa Corn production, '000 tonnes 13,104.0 11,824.0 15,500.0 17,000.0 18,000.0 19,000.0 20,000.0
South Africa Corn production, % y-o-y -25.3 -9.8 31.1 9.7 5.9 5.6 5.3
South Africa Corn consumption, '000 tonnes 12,230.0 12,200.0 12,600.0 12,725.0 12,978.0 13,288.0 13,597.0
South Africa Corn consumption, % y-o-y -3.4 -0.2 3.3 1.0 2.0 2.4 2.3
Zambia Corn production, '000 tonnes 2,395.0 2,000.0 2,700.0 3,240.0 3,369.6 3,504.4 3,644.6
Zambia Corn production, % y-o-y -33.6 -16.5 35.0 20.0 4.0 4.0 4.0
Zambia Corn consumption, '000 tonnes 2,500.0 2,475.0 2,524.5 2,625.5 2,730.5 2,839.7 2,953.3
Zambia Corn consumption, % y-o-y 4.2 -1.0 2.0 4.0 4.0 4.0 4.0
Zimbabwe Corn production, '000 tonnes 1,700.0 765.0 800.0 840.0 882.0 926.1 972.4
Zimbabwe Corn production, % y-o-y -21.1 -55.0 4.6 5.0 5.0 5.0 5.0
Zimbabwe Corn consumption, '000 tonnes 1,900.0 1,900.0 1,976.0 2,055.0 2,137.2 2,222.7 2,311.6
Zimbabwe Corn consumption, % y-o-y 2.7 0.0 4.0 4.0 4.0 4.0 4.0
e/f = Fitch Solutions estimate/forecast. Source: National Sources, Fitch Solutions
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INSIGHT

Middle East & Africa Agribusiness

AFRICA - COMPARISON WITH OTHER REGIONS

Rates To Rise Over Coming Years

e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

Key Long-Term Post-Coronavirus Challenges

Major African Currencies Remain Under Pressure

Note: Year-To-Date Movements As Of July 16. Source: Bloomberg, Fitch Solutions

Key Players Expanding Presence In Region

SSA In Pole Position Beyond 2020

Sources: Fitch Solutions

Infrastructure Outlook Deteriorating Globally

Five Key Themes For Middle East And Africa Agribusiness

1. Covid-19 To Further Cloud Africa's Growth Prospects In 2020

Muted Growth Outlook Across Sub-Region In 2020

Source: National sources, Fitch Solutions

Locust Outbreak Will Have Limited Impact On Major Crops

Source: FAO, Fitch Solutions

Côte d'Ivoire: Largest Cocoa Producer But Small Processor

f = Fitch Solutions forecast. Source: National sources, ICCO, Fitch Solutions

4. Land Expropriation Debate To Remain A Key Issue In South Africa

Land Reform Remains A Budget Priority

Source: National Treasury, Fitch Solutions

5. Weak Economic Outlook Will Weigh On MENA Poultry Sectors

Middle East Leading The Way In Chicken Imports

*Excluding Russia. Source: USDA, Fitch Solutions

MENA Region Dependent On Food Imports

*2017 data. Source: Trade Map, Fitch Solutions

Food Security At Risk Due To Undiversified Supply Chains

*2017 data. Source: Trade Map, Fitch Solutions

Morocco 1.05 0.30 0.49 0.62 1

Tunisia* (2017 data) 0.94 0.31 0.44 0.58 2

Iran 0.97 0.18 0.46 0.54 3

Lebanon 0.68 0.20 0.70 0.54 4

Saudi Arabia 0.68 0.03 0.63 0.45 5

Egypt 0.78 0.05 0.43 0.42 6

Algeria* (2017 data) 0.73 0.05 0.44 0.41 7

United Arab Emirates 0.58 0.01 0.62 0.40 8

Qatar 0.34 0.02 0.62 0.33 9

Imported F&D Arable Land Score Diversification Overall Score Rank

Kuwait 0.38 0.01 0.59 0.33 10

Oman 0.48 0.00 0.31 0.26 11

Regional Average 0.69 0.11 0.52 0.44 n/a

Technology As A Driver Of Domestic Food & Drink Production

Foreign Land Acquisition

Greater Government Intervention In Storage Policies

Source: South African Futures Exchange, Bloomberg, Fitch Solutions

Most SSA Countries Have Been Slow To Approve GMOs

Source: ISAAA, Fitch Solutions

SOUTHERN AFRICA - CORN PRODUCTION & CONSUMPTION FORECASTS

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