The following is based upon a Moneyweb podcast featuring Dr. Marlene Louw, a senior economist at ABSA Agribusiness.
South Africa’s R1.8-billion citrus industry, particularly producers in the Western Cape heavily reliant on the US market, has been granted a temporary lifeline following President Donald Trump’s 90-day pause on reciprocal tariffs. This move offers a brief window for the sector to recalibrate amid the ongoing global trade upheaval, according to Louw.
While the pause provides immediate relief as the citrus export season approaches its peak between July and October, the reprieve is viewed with cautious optimism. Louw emphasised that this 90-day period presents a crucial opportunity for both government and the private sector to thoroughly assess the potential risks and opportunities should the tariffs be reinstated. This includes evaluating the agility of South African citrus exporters in entering alternative markets and understanding the associated costs and opportunities.
However, Louw cautioned that these alternative jurisdictions are unlikely to fully compensate for the significant volumes currently directed towards the US. She noted that South Africa’s export window typically overlaps with those of Peru and Chile, and a reinstated tariff could make Peru, facing a lower tariff, more competitive in the US market. This could potentially open up space in the European Union, but Louw stressed that market dynamics, consumer preferences and logistical considerations like packaging differ significantly, making a simple diversion of volumes challenging. Given that the Western Cape is currently the only region in South Africa with US citrus market access, the province remains particularly vulnerable during this 90-day pause, facing potentially dire local economic consequences if uncompetitive.
Looking beyond this temporary relief, Louw underscored that the longer-term focus must be on securing diverse market access. Drawing parallels with disruptions like COVID-19 and the Russia-Ukraine conflict impacting the wine industry, she highlighted the difficulty of regaining lost shelf space, emphasising the need to weigh the short-term pain of tariffs against the long-term benefits of retaining market share versus exploring new, potentially less lucrative, opportunities. Louw also pointed to the broader trend of politically driven trade agreements, urging South African agriculture to invest in understanding the technicalities of trade law, market dynamics and scientific considerations to effectively navigate this shifting global landscape and engage in bilateral negotiations. This capacity building, involving government, organised agriculture and private sector stakeholders like financiers and insurers, is deemed essential to secure the resources needed to fully comprehend the implications of future trade terms and ensure the sector’s resilience.
Louw addressed the significant concerns surrounding potential job losses within South Africa’s citrus industry. While acknowledging that the citrus sector might not be the largest in terms of overall export value to the US, she emphasised the disproportionate importance of the American market for this specific industry. Louw noted that while the sector has been exploring alternative markets like China and other parts of Europe and Asia for some time, the sheer scale of the US demand presents a unique challenge.
Louw suggested that even with substantial tariffs, the demand for citrus might not be entirely destroyed, given the nature of the product. However, the uncertainty surrounding the duration and extent of these tariffs creates an unstable environment that producers in the sector are ill-equipped to handle. Consequently, she reiterated the prudent approach for citrus exporters to actively explore and develop alternative market options to mitigate their heavy reliance on the potentially volatile US market.
Shifting the focus to the broader economic impact, the conversation touched upon the significant volatility experienced by the rand in response to the US trade policy announcements. She highlighted the unfortunate reality of global market interconnectedness, where the US, as one of the world’s largest economies, exerts considerable influence. The uncertainty generated by the tariff announcements has historically prompted investors to move away from perceived riskier assets, including emerging market currencies like the rand.
Source: SA citrus exporters urged to act fast during US tariff delay window – Moneyweb