For several decades, the South African fruit sector has been a vital source of foreign revenue and employment in South Africa, but right now, this sector is in deep trouble and is facing a very serious threat to its continued financial survival. This challenge to the financial viability of farmers, and their employees and service providers is not due to any problem with their production practices. It lies in the increase in their production input costs and the inability to get their fruit to the usual international markets that they serve affordably and timeously.
This problem is not just South African and is affecting the exporters of fruit and other commodities across the globe. While this is affecting the South African fruit industry, it is also affecting the fresh produce sector in other parts of the world. Other Southern Hemisphere fruit exporting countries are experiencing the same challenges, as the effect of rising shipping costs was the main topic on the agenda for the recent Shaffe (Southern Hemisphere Association for Fresh Fruit Exporters) 2022 Congress.
In a recent speech about escalating costs, US President Biden summarised the basic problem succinctly. Biden explained that since the onset of the pandemic, nine major international shipping companies consolidated into three alliances which control the vast majority the world’s shipping. Since then, these carriers have increased their freight prices by as much as 1000%. In 2021, these carriers made $190 billion in profits, seven times higher that during the previous year. The costs have been passed on directly to consumers globally. These unprecedented price hikes are also affecting basic input costs such as fuel and fertilizer. Exponential freight cost increases and shipping disruptions are effectively reducing returns to the point of putting growers out of business.
The 2022 study conducted by the South African Bureau for Food and Agricultural Policy (BFAP) confirmed that if the current circumstances continue in the export fruit industry, most growers will operate at a loss for the foreseeable future. Despite having very few alternatives as they cannot halt production, the South African fruit export industry growers and shippers are currently having to reassess the viability of the cost and length of the supply chains to their international markets. This could not come at a worse time as most sectors of the South African fruit export industry are growing rapidly at the moment.
The bulk of South African fresh fruit is produced for export markets and traditionally the returns to growers have been sufficiently lucrative to motivate the establishment and development of an export fruit industry worth billions of Rands (ZAR). The combined South African export fruit industry productions are currently all in a significant growth phase. Citrus, table grape, stone fruit, top fruit, blueberries, and avocado productions are all increasing by millions of cartons annually. The citrus industry is a good example and in 2020 the citrus industry exported 146 million cartons.
In an article by Mitchell Brooke, Logistics Development Manager for CGA (Citrus Growers’ Association of South Africa) published in Harvest SA in June 2021, Brooke explains that by the 2025 export season, it is expected that the citrus industry will produce and export approximately 190 million 15 kg equivalent cartons. While the citrus industry is the country’s biggest fruit industry, other fruit sectors are also expanding exponentially year-on-year. Justin Chadwick, CEO of CGA has stressed that exporting fruit at the current rates is simply unsustainable.
Chadwick has also pointed out that the arrogance of the shipping lines has shown them to hold a “take it or leave it” attitude, and that the international shortage of containers has made it possible for them to charge whatever they want. He also stressed that the results of these unsustainable prices were causing the decimation of the fresh produce industry at an accelerated pace and that this would in turn have a major impact on future volumes.
There is a growing sense of frustration and outrage within the South African export fruit sector about these seemingly unreasonable increases in freight rates by shipping lines. Stakeholders in the sector are currently collaborating to find ways of dealing with the issue. Fruit industry stakeholders agree that shipping lines should be made aware of the risks that these steep increases hold for long-term sustainability of fresh produce exports. In addition to the skyrocketing freight rates, South African exporters must cope with the added problem in the South African ports.
In a 2020 global survey which ranked 351 container terminals by their performance, Cape Town (347), Durban (349) and Ngqura (351) were three of the five worst performing ports in the world (World Bank, 2021). The cost to vessels in time and berthing fees from extended port dwell time due to port logistical inefficiencies has even resulted in some container vessels choosing to bypass South African ports at short notice. This clearly has a serious knock-on financial effect for exporters and their suppliers who have booked space on these vessels. Delayed vessels or missed vessels are costing growers and exporters significant losses on their income due to the late arrivals of fruit. It is cold comfort knowing that this challenge is not just facing the South African fruit industry, but that it is part of a world trend. What remains to be seen is what will happen next and how the South African fruit industry will meet this serious challenge.
Article by Louise Brodie