Episode Transcript
The Finance Ghost: Welcome to episode 236 of Magic Markets. This is going to be a really interesting one. This is almost a bit more like a radio show because Moe and I had a plan of what we were going to talk about today, but we've had the opportunity to pull Wandile Sihlobo into the show on very short notice.
Wandile, thank you. This was almost as bad as just cold calling you live into radio. So even though it's a podcast, it feels a bit like radio today. So thank you for making some time for us on such short notice. There's a very good reason for it and I'll explain why shortly.
And maybe for those who are not familiar with you, which honestly can't be too many people, because I think you are very visible out there and prolific and everyone kind of knows who you are. But for those who don't, you are the Chief Economist of the Agricultural Business Chamber of South Africa. You are very involved in working alongside government in trying to get South Africa's agriculture working. You do a lot of great stuff - and occasionally you even make time for us on Magic Markets, which is quite exciting! You're a busy man and we appreciate the time, so thank you for being here.
Wandile Sihlobo: Thanks, man. I wouldn't miss a segment on Magic Markets. So I was very delighted to receive communication from you. Thanks for having me on.
The Finance Ghost: There we go. It's good to have you.
Mohammed Nalla: I just like introducing you as the head honcho of everything agri in South Africa. I mean, realistically, if you want any information on anything happening in agri in South Africa, Wandile is the person you're going to call. And off air I shared some pictures of myself in a cowboy hat. Wandile, I visited some fantastic dairy farms up here in Ontario recently. I've got to share some of that with you. Some very interesting learnings, but that's not why we've got you on the show.
Again, I won't say, say - okay, but now I'm going to say it tongue-in-cheek: Wandile is also the guy who said no to me when I offered him a job very, very long time ago. And I'm never letting that one go. I'm never letting that one go, Wandile. But I think you've done much bigger, greater things out there.
And still waiting for my signed, autographed, signed copy of your books. I say books, plural. You've written two, I think at least that I've seen. And you've got to send those up to me, Wandile. At least next time I'm down there, you got to come and hand them to me personally.
Wandile, why do we have you on the show today, as Ghost has indicated? There's so much going on in the world around tariffs and South Africa currently in the crosshairs of the US administration, as is Canada. And it's such a fluid dynamic space. But then at the same time, we've had one of the listed companies, I think it's Mpact down in South Africa, reporting that their outlook is actually pretty bullish based on the fact that they are expecting higher agricultural exports. And that was, for us, saying do we actually square the circle here? What's going on? How do we - how can South Africa have an upbeat outlook on agri given this very toxic global backdrop we've had?
And I've always been a fan of the agri sector down in South Africa. I think it's one of the most - it's a big employer. It's one of the sectors where South Africa does have a competitive edge. So Wandile, what's actually going on? How can we, or should we even be bullish on agriculture in South Africa with a global backdrop that we have at the moment?
Wandile Sihlobo: I tell you what, Ghost and Moe, I'm even more bullish. You think about 2024, the agricultural exports in South Africa were at $13.7 billion. That was a record level. My sense is that for this year we will cross the $14 billion mark and we will continue to actually see excellent performance in this sector.
What is happening, especially with the packaging industry providing all of this material that we need, is the fact that we actually had a robust harvest in a number of the commodities in agriculture. And of course, I know that with the tariffs they get to have a dominant part of the conversation. But I think it's important to always put the US story into context, which is that in the bigger picture, the US is about 4% of our overall agricultural exports and it is also concentrated in a few commodities: citrus, table grape, wine, nuts, and some ostrich products there. So that's - if you look at those cowboys in Texas, those boots, there's a lot of our ostrich leather that is there.
So that's what has been happening. But I think for the recent performance, there's been a lot of guys that have actually pushed their material to take advantage of the relief that we were having in the US, especially those that are in citrus in the Western Cape. And the point about being at 4% is that at a national level, its impact may not be as huge. But of course, for individual businesses, that gets to matter a lot. But I think the packaging industry will still do well because we will be exporting more to other regions and we have robust harvest in our commodities.
The Finance Ghost: I mean, that's the hope, right? Is that other markets open up for this stuff? It's so interesting, right - it's so politically charged, and every time something happens with the tariffs with South Africa and then everyone jumps on the bandwagon of our government's done all these terrible things and goodness knows they are not above reproach. But then you'll see a story like tariffs of a reasonably similar percentage on Switzerland. And then it's like, well, that's interesting because they don't have BEE in Switzerland and they don't have a bunch of these other things that keeps getting quoted as being the source of all this anger.
So, just leaving aside the convenient narratives that get peddled around the press basically everywhere, I guess the one interesting point here is it's not just about can South Africa open up other international markets, but also if everyone has a tariff, then no one has a tariff. It just becomes a tax on US citizens, isn't it? So if everything is just 30% - I'm not saying that's what it is - then actually the loser here is the US citizens while we're busy Making America Great Again, because it's not like the products become cheaper from one country versus another.
Now, it's infinitely more nuanced than that. And obviously you've got suppliers of different products who get hit by different tariffs. And I'm definitely not saying it's just this like net zero effect, but there's got to be an element of that? This is not - South Africa has not been sanctioned here. We've had tariffs put on US that are not that different to what a lot of other countries have seen, right?
Wandile Sihlobo: Absolutely. And I think that the South Africans tend to think of this as if a tariff is a total closure of the market. But what we're seeing here, it matters a lot to us what tariff Peru and Chile get because those are some of our direct competitors in the US market. And of course this time around, they are getting relatively lower tariffs than us. But I mean, look, we are selling their consumable products - where Moe is sitting and the others, they have a better, higher income and hopefully they will still be able to absorb and purchase some of these products. So those are the dynamics and what you have explained is important.
But Ghost, you know what? The US is not the only country that has tariffs on our products. People forget this. But if you are sitting in South Africa, Western Cape, and you are trying to sell your wine to China, you face a 20% tariff. If you are sitting in Mpumalanga, you are trying to sell your macadamias to China, you face a 12% tariff. But still we are trading with those markets.
And now what is interesting, you had China coming out and saying, hey, we will slash these tariffs. But of course they need something in return to that. And China is an important market because they account for about 11% of global agricultural imports. If we are able to participate in that Chinese market while at the same time trying to see if this tariff game in the US can be resolved, I think for me, that can put us in a better place.
And the other thing that I liked about this conversation is the fact that the tariffs have forced the South African government to think critically about export diversification. For some time we have been saying: open up many markets, open up many markets! And no one has been listening. And this has been crucial for agriculture because today we export about half of what we produce in South African agriculture. And you still have so many trees, about 30% improvement that we are expecting just on volume of fruit, on the trees that we have planted in the next five years. That fruit needs to go somewhere, it can’t be consumed in the South African market.
And I think for me, the most urgent conversation for Minister Parks Tau, Minister Ronald Lamola and Minister John Steenhuisen is opening up markets for diversification. While then of course, we are winding out and seeing if we can resolve the US issues and get some table grape and citrus to Canada so that when Moe walks around the street, he can be able to get great South African fruit, because I think they can be able to absorb a bit of those table grapes. And in fact, that's what the table grape farmers more are saying in there in the Orange River. They want more table grapes to Canada.
Mohammed Nalla: Yeah, Wandile. Thankfully we get a lot of very good South African agricultural produce. You know, the grapes - whenever my daughters come with me to the grocery store, you know, they're like, hey, look, these grapes are from South Africa. Or, hey, look, we're only buying South African citrus. You know, our lemons are always - we're making lots of lemonade, it's summer up here, very hot - it's all South African citrus. I think your farmers will be very happy to hear that. You know, the ability - you've almost read my mind. Because I think the ability for other markets to absorb the US' relative share of South African exports is there, provided you diversify it across a wide enough subset. The answer is not going to be - certainly not Canada. We're quite a small market in the greater scheme of things. But if you throw Canada in there and you throw China in there and the rest of Southeast Asia in there, and the Middle East, which has been a very high potential market for growth in a number of products, ranging all the way from meat through to some of your fruits and veg and so forth, it's a big world out there. And I think the point I want to land on here is that the uncertainty around the US tariff to the point you had actually indicated Wandile, it's not so much, hey, this is the tariff we're being charged, we’re locked out of a market. Markets want certainty. Once producers know, hey, okay, I've got a 35% tariff on my produce, then you price accordingly, or you structure your operations accordingly, you target markets accordingly.
I think the difficulty with what we're seeing right now, and it's not a South African situation, Canada is firmly in the US crosshairs at this point in time - is that you have one policy in a certain week, and then the next week it's a different policy. Then there's a pause, then the pause is taken away, and it's that uncertainty, because businesses like certainty, once they have the parameters, they can plan around that.
Now, where I want to go with this is I actually do have a question. Wandile, you've mentioned the very important point of diversification of South African exports. Where do you see the highest potential markets and for what products? We've mentioned China. China's almost the easy call, right? But what about markets beyond China and what products specifically? Which segments of agriculture actually have that capacity? You've mentioned macadamias. I mean South Africa has probably the world's largest macadamia production. I think that's the stat. You correct me if I'm wrong, but it's the world's largest macadamia production. How much marketing is going on out there to get consumers in developed markets to start consuming more macadamias?
Because we get it up here, it's just very expensive. I know macadamias are expensive, but there's not enough marketing around, for me, a macadamia versus a pecan versus a walnut. What about some of those behind the scenes initiatives? Which markets, which products and what's actually happening on the marketing?
The Finance Ghost: Moe sticking his hand up here for an international trade relations post in the South African government. That's what I'm hearing. This is some deep thinking around very specific product verticals.
Mohammed Nalla: No, no - I just want the contract to supply tons and tons of macadamias into Canada. You know, that's what I want. I'm a capitalist, right?
The Finance Ghost: Moe, this is the last time Wandile is joining us on an unscheduled basis to come and talk about general agri - you hit him with the “so tell us about the specifics of marketing macadamias in the world” - if this man has this answer, I'll be very impressed.
Mohammed Nalla: He does!
Wandile Sihlobo: I have to take that message to Minister Parks Tau and Lamola and say listen, there is a patriot sitting in Canada to assist the envoy on a North American marketing side.
And I think folks, I'll start off with the point that Moe highlights on China because yes, it is an easy pick. But I think on agriculture, it’s justified. I mean if you think about it, about how much China spends each year importing agricultural products, these folks spend $200 billion each year. And if you think about our exports to the world, last year they were at $13.7 billion, which means that they can absorb everything that we sell. And when you look at the profile of what they are buying: there's meat, there's various fruits, there's wine, there's grain. They buy so much of what we are actually sending to the world. So that's the one part.
And I think on China, the key issue there, although the relationship seems to be warm between the political leadership in South Africa and there, there's a hindrance on the business side. It's about them having to finally lower the tariffs and remove any phytosanitary barriers so that we’re able to trade. And of course then, the logistics and the business relationship can be formed on that.
I think that begins then to be important because it benefits the farmers, the traders, the businesses like what we started with, those that are in the packaging space of the products that we're sending to these markets.
But I think beyond China, still in that Asia aspect, I mean we're very interested in the countries - the likes of Thailand that are opening up, Japan, Vietnam, Taiwan, those are all of the markets that we participated in. And when you think about where South Africa in terms of the exports it's growing in, we like more of the fruits, the wine as well as the red meat. And in a fruit, I mean you could look across the citrus that we talk about. But you think about the apples, you think about the pears, you think about the grapes, blueberries, want to put that into China and of course the various nuts and the products.
We have about roughly 36 agricultural commodities that we are able to put in the export market. Our basket is quite rich as a country.
In the Middle East - the Middle east is very exciting. Saudi Arabia spends over $20 billion on agricultural imports each year. Qatar, the numbers are as exciting and those are the countries that are on our radar. We are already sending them live sheep and some of their red meat and we want to make sure then that we deepen the access in those markets. And I think if we can do that, then retain what we have in the African continent, retain what we have in the EU, the UK, we'll be sitting in a fairly better position as a country even now thinking about the expansion and what we could get in future, which is why I was saying the whole point about the export diversification. For me, it actually comes at the right time because it is part and parcel of the long term growth when we are thinking about the South African agricultural prospects for the next couple of years.
The Finance Ghost: I mean it's so interesting, right? The country's - it's like owning a little business and here are all my products, here are all my customers, and we’ve got to get out there and we've got to get the products to the customers. That's what we need to do. And I think Wandile it's interesting to see how this bullishness just didn't make its way into the general understanding in the markets. And I can tell you it didn't, because I'm looking at the Mpact share price now.
So year-to-date, by the time we got to mid- to late-July, this thing was down more than 20% this year. Now, Mpact has been struggling with some other issues. They are a cyclical play, the paper industry has got pricing issues - there's a lot more to it than just, oh, are we sending Moe some fruit in Canada? But the point is, the thing was down more than 20% year-to-date. In the past five days, basically the past two days effectively, it's been driven by this release of results – the share price is up 14%. So the year-to-date drop is now down at like 6.7%. Now, this tells you that the market got a big positive surprise. And I can tell you the big positive surprise was not Mpact’s net earnings, which were not good. It was their commentary around the agri sector.
So I guess maybe a nice place to bring this to a close - it'll be a shorter podcast today, but you've graciously joined us at the last minute to come and answer Moe’s outrageously detailed questions about macadamias, so I feel like we therefore need to let you go home, you've earned it - I guess the last question is, why are we not doing more as South Africa to get the message out there to our people that it is not as bad as the media would have us believe at times? And I understand it's because the media is getting the message out there and bad news sells. And that's why we love having someone like you on this show, because we are not interested in the number of clicks. We are interested in actually bringing great insights to people about what's really going on out there.
But do you think we should be doing more? Do you think we need to be telling the South Africa good news story like this a lot more where there's a good news story to tell? Because if the market, which is full of people who are doing research all the time, can get a shock like this, it just tells you what the perception of the average South African is.
Wandile Sihlobo: Absolutely Ghost, I do think that the message needs to be balanced out. And I think for some in agriculture in South Africa, I'm now threading onto the sectoral political matters - there's always a difficulty of saying, hey, look, things aren't that bad, while you know that there are some folks that you know in the Western Cape or in Mpumalanga or in KZN that are struggling.
But I do think that the point needs to be nuanced to say for individual business and some of the sectors in certain regions, there certainly will be a heavy financial impact. But looking broadly at a national level, the picture is much more nuanced and I think we need to bring some of these important stories. Because ultimately if we don't do that, we are pretty much putting the sector at a place where we say this is a risky environment to be in, don't look at investing a lot in agriculture because of these trade policies, things can be blown out overnight - but that's not really the case.
This is a sector that people can still invest, especially on the value chains that are around the red meat, on value chains that are around various fruits and wine. There are still opportunities that lie in here.
I think that the more that the trading environment opens in other regions, it means then that there are much more, better business opportunities there. But I do think that there's also room on the services side of agriculture, which is exactly where you're saying of how is this story being put out there? And that's the one part. The second part is that interaction between the government as well as the various businesses on putting out the South Africa Inc products. Other countries are doing this. If you think about the countries in the EU and the UK and you look at the interaction between the private sector and the business when they go out there in the world, I think in South Africa we can do much more of that.
But certainly, the agricultural story 2025 is an uneven recovery. It is not a doom and gloom. And for the long term this sector is still very much promising. I'm still very optimistic in it.
Mohammed Nalla: Wandile, you're convincing me to come back down to South Africa and instead of being in financial markets to be a farmer, right?
The Finance Ghost: Moe, we need you up there as a macademia influencer. Moe you actually - we now need you to stay there. This is the piece you're clearly missing from this conversation.
Mohammed Nalla: I'll have to shuttle back and forth. You know, the ultimate dream is Moe in a cowboy hat on like a really big ranch out there with lots of cattle. Wandile, you know what, when I actually head back to South Africa and if I'm looking to get into farming, you're the first phone call I'm making, I can tell you that much.
Unfortunately, that's where we’ve got to leave the show. There's just so much to unpack. Again, I love agri as a sector. I've always seen it as one of the highest potential sectors for South Africa. And it's almost counterintuitive because, people when they're looking at economies, they say, primary sector that's in your early stages of development, then you get manufacturing, then you get services, and we know South Africa is prematurely deindustrialised. But again, if you have a competitive edge, South African produce, whether that's the meats, whether that's the fruit, whether that's your seafood, everything that comes out of South Africa from an agri perspective is just fantastic. And I'm not just saying this as a South African, I'm telling you objectively, having consumed the produce across various continents over the course of my life, South African produce is fantastic. I think any good work that the South African government can do hand-in-hand with businesses, businesses that are strong, farmers that are strong, a sector that is, in my view, very strong, punches way above its weight on an international stage, that would be very good in terms of just bolstering the investment case around not just SA Inc. but the SA agricultural sector.
Unfortunately, that's where you've got to leave it this week. Let us know what you thought of the show…
The Finance Ghost: …wait, Moe! I have an anecdote. Wait, wait, wait, wait. There's a story to just, you know, while you run away there back to your macadamias. Because on this whole proudly South Africa theme of the food that we eat, I just wanted to share with you - when I was in Italy last year in Florence, which is famous for their red meat, and we were at a restaurant and we were offered this Florentine steak for a gazillion euros, of course, and the whole story. And this waiter was trying very hard to get us to try the steak.
And I was quite tempted because I thought, what's it like? And at the table next to us, there was this lovely girl sitting there who turned out to be from Egypt. We ended up making friends with her, as South Africans do when we're traveling abroad. We're a friendly bunch. She actually said, this steak's way too big for me, and anyway, you're not going to like it, here, taste a piece. Which is how I also knew she wasn't from Europe because she was also very friendly. And so this lovely girl from Egypt gave us a little, like, taste of her steak. And she said, see? Nothing like South Africa.
And then the waiter came back and said, so, would you like a steak? And she literally said to the waiter, you're wasting your time, they're South African, they're definitely not buying European meat. So it was just a very funny situation, basically, from start to finish, for everyone but the waiter who figured that we were going to part with, I don't know what it was, like €40 or some massive number for this pretty average piece of steak. So, anyway, you're right Moe - the point is South African produce is world class.
Mohammed Nalla: Yeah. I'm going to become not just Moe's Macadamias, but I need, like, Moe's Halaal Beef up here in Canada, Wandile. We've got to send Moe's Halaal Beef, whatever you're sending to the Middle East, send it up here to Canada. I'd rather have that than some of the steak we can get up here again.
We unfortunately have to wrap the show. There's so much to unpack, Wandile. There's one promise from us to you: we're definitely going to have you back on the show, hopefully before I actually head down to South Africa and buy that farm you're talking about in the Free State.
Wandile Sihlobo: Absolutely.
Mohammed Nalla: But to our listeners, we hope you've enjoyed this. Hit us up on social media. It's @MagicMarketsPod, @FinanceGhost and @MohammedNalla. All on X. We'll also include Wandile's in the transcript. Go and check that out. He's a really fun guy, very, very knowledgeable. And reach out to him if you have specific questions around Agri. There is no other expert I would recommend down in South Africa.
Wandile, thank you so much for being on Magic Markets as a guest yet again and we look forward to having you back in the future.
Wandile Sihlobo: Thank you so very much.
The Finance Ghost: Thanks, Wandile. Ciao.
Mohammed Nalla: Thanks and cheers.
This podcast is for informational purposes only and is not financial or investment advice.
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